Block Transfer
A decentralized stock transfer agent protocol for global financial markets
Created on 4th April 2021
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Block Transfer
A decentralized stock transfer agent protocol for global financial markets
The problem Block Transfer solves
Every public firm on Earth must have a transfer agent by law (see Securities Exchange Act of 1934 Sec 17(a) or equivalent abroad). These firms maintain the official record of all shareholders (see Diagram 1 for place in traditional trading), making them vital for stock splits, dividend distribution, shareholder voting, and more. TAs are the true backend bookkeepers of "who owns what stock."
However, millions of human-processed book-entry stock transfers waste billions of shareholder dollars each year. Furthermore, it oftentimes takes HOURS sitting on the phone to directly transfer book-entry stock, and, for this sub-par shareholder service, firms waste 6+ figures/yr (over 1.44B last year in the US alone) for a trusted central point of failure. The whole process in general is slow, tedious, wasteful, and incredibly lucrative, as the central bookkeeping trust creates one of the highest-margin businesses in all of public finance.
The role of transfer agents today represents a gross misallocation of shareholder dollars that must be haulted. Blockchain was created for the sole purpose of maintaining ledgers just like a TA ledger, and smart contracts (and our subsequent dApp) enable intelligent execution of a decentralized finance TA protocol. This means that anyone can access and transfer their assets instantaneously, prove their ownership stake with no central trust, verify other shareholder stakes, vote at shareholder meetings without proxy middlemen, and more with no central point of failure... all while significantly lowering the TA expense for the underlying since cost comes from distributed gas fees (not arbitrary agent profit).
We came into the hackathon with a general outline of how we wanted our smart contracts to function, and finished it strong with a seamless Web3 interface for stock transfer agent services. Through equity backed by contractual transfer agent obligations with the underlying, we've laid out the groundwork for global decentralized equities.
Challenges I ran into
One of our first challenges was regulatory compliance. Since our project relies heavily on historic global regulatory frameworks, we had to ensure our DeFi protocol complied with all given laws so that we can enter contractual TA agreements with public firms. Through significant research and efforts prior to the hackathon, we obtained compliance with all 6 of the 6 regulatory programs TAs report to automatically through our dApp, IPFS backups of public Merkle tree states, and generalized API calls from SEC-reporting data lake systems. This aspect of our infrastructure had less to do with our Web3 work at this hackathon.
Combining these reporting standards with our existing guidelines for TA functions, we began implementing our interface platform. We immediately faced challenges meshing together our general smart contract code with MetaMask libraries through npm. We had to quickly uncover the interfacing schemes behind the libraries to securely link local wallet signatures with the underlying Web3 page in a visually appealing way. However, we persisted in leveraging MetaMask to ensure maximum security standards for connecting parties. Furthermore, we outlined best practices for enterprise key safekeeping behind the platform so that participants can maintain asset ownership confidently. This should pay off down the line as we implement our protocol and host the built Web3 platform on ENS while maintaining local hashes for user transfers.
Looking forward, we now get to handle automated regulatory reporting since we have agency accounts and finalized our Web3 platform for independent shareholder transfers. This means taking state snapshots of tokenized equity blockchain ownership in accordance with our contractual obligations with public firms. This presents a challenge in removing ourselves as a trusted central party, so we'll use privacy-compliant IPFS EDGAR and DTCC FAST ledger processing directly on-chain in an auditable dApp infrastructure to succeed sustainably.